We retain our negative stance and ?sell? rating on Siemens , based on unjustifiably high valuations (25x FY2013e EPS). This is due to the volatile nature of business performance, market pressure (execution delays on funding and clearance issues, and order finalisation delays), and increasing competition in the power segment with competitors like Alstom, Crompton and Hyosung scaling up their presence.
We value Siemens at 22x FY2013e earnings, leading to a target price of R575 (against R600 earlier). We also revise our earnings estimates to R23.3 and R27.4, from R26.6 and R31.7 for the year ending September 2013 and 2014, respectively, based on lower revenue assumptions (flat energy sales in FY2013e, lower 5% growth for infrastructure and cities).
Siemens’ Q4 results were weak on sales (down 8% y-o-y) and margin (5.3% adjusted for forex loss, impacted by delay-led cost provisions). Full-year inflows declined 17%. This feedback has been common across industrial companies in Q2FY13. Siemens has not reported strong signs of a sequential pick-up even though the market possibly expects it. We are also disappointed by lack of pricing power in a weak cycle with even MNCs making 5-7% margins only.
Ebitda margin dropped to 2.9% in the quarter, down ~600 bps y-o-y. Adjusted for R800 million of forex losses, the Ebitda margin of 5.3% was lower than our estimate of 9%, led by higher raw material costs (270-bps impact) and higher employee costs (310-bps impact), which increased 32% y-o-y (on amalgamation of Siemens VAI Metals and Morgan Construction with the company in October 2011) and 24% q-o-q.
Siemens reported a net loss of R50 crore, led by exceptional losses of R120 crore (impairment loss on the wind business in which it decided not to go ahead with a facility under construction, thus leading to redundancy of a large part of investments already made in the facility).
Siemens won orders worth R2,850 crore in Q4FY12 (flat y-o-y) and R10,200 crore in FY2012 (down 17% y-o-y). This led to an order backlog of R11,900 crore (down from R12,500 crore at the end of June 2012 from R13,900 crore a year earlier).The backlog provides 0.9 year of visibility on one-year forward revenues.
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